SAPPI LIMITED

SAPPI
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued)
for the year ended September 2010
29. FINANCIAL INSTRUMENTS (Continued)
Hedge accounting
1. Fair value hedges
Until June 2009, the group had fair value hedges which qualified for hedge accounting. As the
hedging instrument was sold in 2009 hedge accounting was ceased.
The result of the sale of the hedging instrument was booked to the income statement in 2009.
The final life-to-date fair value adjustment of the underlying bonds on the date of the sale of the
swaps is amortized over the life of the initial hedge designation period and amounted to US$46 million. In
the course of 2010, US$136 million of the underlying bonds have been redeemed early and the
corresponding amortization has been booked immediately into the income statement.
In consequence the impact on the profit and loss account will be as follows:
Fiscal period (US$ million)
4th quarter 2009 ...................................... 1
2010 ............................................... 21
2011 ............................................... 12
2012 ............................................... 12
Total ............................................... 46
As at September 2010, the group does not have any outstanding fair value hedges.
The following is an analysis of the impact on pre-tax profit and loss for the period based on the
consolidated accounts translated at average rates:
Favourable (Unfavourable) 2010 2009
(US$ million (US$ million
at average at average
Fair value hedges
rate) rate)
Net profit or loss impact of sale of interest rate swaps . . — (18)
Realized result on sold hedging instruments .........
Reversal of life-to-date fair value adjustment on hedging
— 52
instruments ............................... — (59)
Reversal unrealised interest accrual on IRS .......... — (11)
Amortization ................................ 21 —
Residual ineffectiveness ........................ — (9)
—gain on hedging instruments ................... — 41
—loss on hedged item ......................... — (50)
Total ...................................... 21 (27)
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